Biotech IPO Watch: Optimer Drops Price, Then Trades Well

Optimer (OPTR) had trouble finding investors in its IPO, forcing the company to keep lowering its price.

But once it began trading, the stock was received warmly, producing a decent gain. When it first announced terms, Optimer said it planned to offer 5.25 million shares in a $12-$14 range. But that lofty price was cut to $8-$10, and then the stock finally priced at $7, though the size of the offering was upped to 7 million shares.

Once freed to begin trading, Optimer is hovering at $8.51 late in its initial session, a sturdy 22% return for the IPO investors, and a vote of confidence after the desperate search for a pricing level that the market would accept.

Optimer concentrates on antibiotics, with two diarrhea drugs in clinical trials. Its lead candidate is Difimicin, currently in a Phase IIb/III trial for Clostridium difficile-associated diarrhea [CDAD], the most common form of hospital-acquired diarrhea. The drug has been given Fast Track status. Optimer claims the drug has an attractive side-effect profile, convenient dosing schedule, and a low rate of recurrence, all of which give Difimicin a competitive advantage over current treatments.

Difimicin is currently in a double-blind Phase IIb trial against vancomycin. Difimicin is administered twice daily, while vancomycin must be dosed every six hours. Optimer says that vancomycin, unlike Difimicin, is a broad-spectrum antibiotic. It disrupts the normal gut flora, allowing C. difficile to flourish in the bowel. As a more selective inhibitor, Difimicin disrupts the pathogen, prevents recurrence and allows the gut flora to be maintained at a healthy level.

Once 100 patients are treated, an independent data safety monitoring board will review the results. If the data are positive, Optimer will continue the trial as a Phase III test, eventually enrolling 664 patients. Data from that test will be available in Q4 of 2007. A second Phase III study will begin in the first half of 2007 with results published in the first half of 2008. Optimer expects to file for approval of the drug in the second half of 2008.

In the Phase IIa trial of Difimicin, all the patients in the 400 mg cohort were cured of CDAD, though four out of 45 patients, who received a lower dose, were not.

Difimicin is also being looked at as a treatment for other infections, and it will be tested for CDAD prophylaxis.

Optimer sold the US rights for Difimicin to Par Pharmaceuticals (PRX) in April of 2005. However, Optimer bought the rights back in January of 2007. Optimer says that “a portion” of the IPO proceeds will go to Par to pay for the re-acquisition. To be more specific, Optimer will pay $20 million, a future $5 million milestone, a 5% royalty in the U.S. and Israel, and a 1.5% royalty elsewhere in the world. Should Optimer sell the ex-U.S. rights, Par would receive 6.25% of any royalties that go to Optimer. Par never had any claim on the ex-U.S. rights under the original agreement.

Under the old agreement, Par would pay Optimer a 20% royalty on U.S. sales. That means the terms - $20 million upfront, etc. - are for the 80% of the U.S. rights that Optimer did not already own. If Par was willing to let go of Difimicin for this amount, how much is the drug worth to Optimer?

The other drug under development at Optimer is Prulifloxacin for traveler’s diarrhea. Optimer bought the U.S. rights to the drug from Nippon Shinyaku in June 2004. The drug has been in use as an antibiotic in Japan since 2002 and in Italy since 2004 for urinary tract infections and respiratory tract infections [RTIs]. Prulifloxacin is in two Phase III trials currently.

Also, Optimer has a proprietary drug discovery technology, which it calls Optimer One-Pot Syntheses [OPopS]. OPopS is a computer-aided technology that allows rapid, low-cost synthesis of carbohydrate-based compounds. Optimer intends to out-license the product candidates discovered by the technology.

Thus far, Optimer has raised $69.9 million in venture capital. It probably received some money from Par that it is now paying back (Par also owned 16% of the company). Existing investors paid an average of $4.75 for each share of the company they own.

Optimer lost $7.6 million in 2005, an amount that increased to $8.1 million in the first 9 months of 2006. That gives the company a burn rate of just about a million a month. It had $23.6 million in cash on September 30, 2006. The company took in a net of $45.6 million before expenses (but after commissions) in its 7 million share IPO, and $20 million of that will go to Par. After the IPO, there will be 21.7 million shares outstanding, meaning that Optimer has a market cap of $185 million.

Disclosure: none.